What Now For Fair Value?

Financial services groups are probably huddling right now to figure what to do about the April 2 vote on mark-to-market accounting taken by the Financial Accounting Standards Board, Norwalk, Conn. The action was taken on FASB staff position 157-e.
Immediately following the vote, a coalition of business organizations questioned the FASB’s objective of measuring fair value as an orderly transition in a current market. However, FASB was lauded by the coalition for its decision on impairment rules which “represent real progress in the accurate reflection of real economic losses.” In a nutshell, companies would not have to report impairments on their income statements if they intend and are not forced to sell assets before they regain their full value. If 100% of cash flows are expected to be recovered, then an impairment would have to be recognized.
The coalition includes the American Council of Life Insurers, the Commercial Mortgage Securities Association, the Council of Federal Home Loan Banks, the International Council of Shopping Centers, the Group of North American Insurance Enterprises, the Mortgage Bankers Association, the National Association of Home Builders, the Property Casualty Insurers Association of America, The Financial Services Roundtable, the Real Estate Roundtable, and the U.S. Chamber of Commerce. Whew! Did I get them all?
Doug Barnert, GNAIE’s executive director, explained the dilemma GNAIE and others see with the FV vote. The crux of the problem is whether a current market should be used as a standard for determining exit value, he explains. Right now, the current market is inactive and not a good way to measure FV, he explains. The board’s goal for an orderly transaction is not possible right now because the market is disorderly, he adds. Barnert says he has heard buzz that companies may refrain from early first quarter implementation because of the uncertainty surrounding how to do a fair value calculation.
Coalition members as well as any other insurer interested in fair value accounting don’t have a lot of time to figure out what to do. A briefing document of the decision was released today and the effective date for these new standards is scheduled to become effective for periods ending after June 15.
What will be interesting to watch is whether there is much will among members of Congress to listen to the arguments of these groups. A flagging economy; troubled automakers, banks, and giant insurer AIG; as well as fearsome unemployment figures may push the issue to the back burner. After all, Congress could argue. FASB is the accounting guru. Let it do what it does best and free Congress up to tackle other pressing tasks.
Stay tuned on this one.